美國醫院公司 (HCA) 2006 Q1 法說會逐字稿

Good day everyone and welcome to the HCA first-quarter 2006 earnings release conference call.

Today's call is being recorded.

At this time, I'd like to turn the call over to Mr. Vic Campbell.

Please go ahead, sir.

Thank you very much, Laura.

Good morning to all of you on today's call and also to those of you who are listening on our webcast.

This morning, we released our first-quarter results.

They were $0.92 per diluted share, which was at the high end of the range of the previous guidance we released on April 17.

That range had been $0.89 to $0.93.

With me this morning, Jack Bovender, Richard Bracken, Milton Johnson, Mark Kimbrough and most of the other senior officers based here in Nashville, including all of our group presidents.

Let me remind you, today's call will contain some forward-looking statements that are based on management's current expectations.

Numerous risks, uncertainties and other factors may cause actual results to differ materially from those expressed in our forward-looking statements.

These factors are listed in our press release and we include them in all our SEC filings, which I encourage you to read.

Many of the factors that will determine the Company's future results are beyond the ability of the Company to control or predict.

In light of significant uncertainties inherent in our forward-looking statement, you should not place undue reliance on these statements.

The Company undertakes no obligation to revise or update any forward-looking statement, whether as a result of new information or future events.

And as you heard, the call is being recorded.

A replay will be available later in the day.

Last point I want to make is, during the call, we may make reference to some non-GAAP terms.

Specifically, I refer you to page 7 of today's press release.

This is a page that we have included for the last year entitled Supplemental Non-GAAP Disclosures.

This provides a comparison to reported GAAP results to certain operating data adjusted for the impact of the Company's discount for the uninsured (technical difficulty) which we began January 1, 2005.

And I think this is important and helpful as you compare some of our costs as a percent of net revenues.

With those comments, I will turn the call over to Chairman and CEO, Jack Bovender.

Thank you, Vic, and good morning to everyone.

The first quarter results, although mixed in several areas, provide the Company with a solid start to 2006.

The first quarter of last year's financial results as you will remember far exceeded our expectations, presenting us with difficult comparables to jump over in the first quarter of this year.

Richard and Milton in a moment will discuss results of the quarter in more detail, so let me take a moment to talk about a few other items.

First, share repurchase continues to be an important component of the Company's strategy to enhance shareholder value.

Since 1997, we have repurchased over 361 million shares of the Company's common stock at a cost of $12.5 billion.

Our average price on those shares is approximately $34.62.

In the first quarter of 2006, we completed the October of 2005 2.5 billion share repurchase authorization, repurchasing a total of 49.7 million shares.

During the first quarter of 2006, we repurchased 13 million shares at a total cost of $653 million.

Another means of enhancing shareholder return is in the form of cash dividends.

On February 1, the Company's Board approved another increase to the Company's dividend.

We now have a $0.17 per share quarterly dividend, up from $0.15 per share last year.

Based upon our current thinking, we feel that a payout range of approximately 20 to 25% of the Company's income in the form of dividends to our shareholders is appropriate.

We will continue to evaluate our dividend policy annually to determine whether changes are appropriate.

During the quarter, the Company realized approximately $75 million in gains on sales of equity investments held by the Company's malpractice insurance company, Health Care Indemnity, or HCI.

At quarter end, HCI had approximately $2.2 billion in invested assets, including $735 million in equities and a balance in fixed income and money market securities.

At year end 2005, HCA -- HCI had unrealized gains of approximately $184 million, increasing to approximately $200 million during the first quarter of 2006.

The decision was made to take gains to lock in profits and to rebalance the investment portfolio.

We believe it is important to manage our balance sheet, including our investment portfolio at HCI, to increase the total return to our shareholders.

I would like to spend a moment or two on the recently proposed Medicare regs for 2007.

Mark tells me there has been a good deal of speculation concerning the proposed ERG recalibration and its impact on various health-care providers.

The proposal has been out a little over a week and appears to be generally in-line with much of what had been rumored for sometime.

The proposal doesn't appear to be a significant negative issue for health care providers unless you are a specialty heart, orthopedic or surgical hospital.

Since HCA has such a large and diverse group of hospitals, we represent approximately 5% of all hospital admissions in this country.

Therefore, simply reallocating value among DRGs doesn't necessarily result in a reduction to our Medicare reimbursement.

In fact, our medical DRGs are more heavily weighted toward medical, about 70%, compared to about 30% surgical.

Finally, as noted in this morning's release and widely reported, the anticipated completion of our sale of five hospitals to [LivePoint] was not completed as planned by the end of the first quarter.

The two companies are working on a modification of the purchase agreement.

Therefore, the anticipated gain of $0.14 has been excluded from our 2006 earnings guidance, taking our range from the previous $3.25 to $3.45, to $3.10 to $3.30 per share.

And now, let me turn the call over to Richard.

Thanks, Jack, and good morning.

No doubt from a growth perspective, the first quarter was a difficult one for us.

In short, soft patient volume, particularly in Florida and Virginia, created a revenue shortfall and a deterioration in certain cost metrics as we added lower base on which to spread fixed costs.

Pricing yields and intensity of services provided were generally favorable.

And I know Milton is going to comment on these in more detail in a moment.

And to reiterate what Jack mentioned, when you consider our results for this quarter, remember that the first of last year was a particularly strong one for us, making for difficult comparisons.

I know most of you have seen our pre-release and our release of this morning.

These documents contain most of our key operating statistics, so I won't repeat that information right now.

Instead, I would like to focus my comments on two areas of challenge for the quarter -- volume trends and labor costs.

Relative to patient volumes, we reported a same-facility decline in admissions of 0.7%, compared to a 1% increase in the first quarter of last year.

Equivalent admissions, reflecting both out inpatient and outpatient activity, performed somewhat better, though were essentially flat compared to the prior year.

As I have mentioned on previous conference calls, we believe the general reasons for our volume slowdown include a decrease in the number of DPU admissions; that is, skilled rehab and psych admissions.

The reduced admissions in these units affected our growth rate by approximately 30 basis points for the quarter.

Secondly, we have experienced a general decrease in the number of medical cardiology-related admissions to our hospital.

The reasons for these decreases we believe are due to a number of factors, including new medical treatment or drugs, credentialing decisions that we have made at certain of our Florida facilities and increased competition, including physician-owned heart hospitals, primarily in some of our Texas markets.

Additionally in the first quarter, we noted a significant decline in pulmonary-related admissions, which we believe is consistent with the [light] flu season, as well as a slowdown in emergency department visits which occurred in many markets throughout the Company.

Seasonal volume trends did not materialize in Florida in a way that was consistent with our expectations and historical trends, particularly in the Dade, Palm Beach and Tampa markets.

Exact reasons are unclear, but in addition to the reasons just mentioned, anecdotal comments suggest that some individuals who visit seasonally in Florida did not make the trip due to the upheaval remaining from the past two hurricane seasons.

And let me add that Charlie Evans, our Group President for Eastern Operations, and Paul Rutledge, President of our Central Group, are here today with us and ready to provide any additional information concerning our Florida and Virginia operations.

As you know, volume growth rates vary widely across the Company.

Markets that experienced particularly strong admission growth rates in the first quarter, say, greater than 3% (indiscernible) at 7%, were Charleston, South Carolina;

Austin, Jacksonville, Southern California, Houston and Wichita.

Key markets with lower than anticipated volume growth would include our Florida market, with the exception of Jacksonville;

Kansas City and certain of our large Virginia hospitals.

While generally I try to avoid normalized statistics in the case of the factors affecting our volume performance, I do think such statistics in this instance may provide an additional level of clarity.

If we adjust our admissions growth rates (indiscernible) effective the DPUs and the decrease in pulmonary admissions, same-facility admission growth rate for the quarter were 1.1%.

As we have reviewed the service mix of our volume for the quarter, it should be noted that our surgical caseload performed well.

In total, surgical volume on a same-facility basis increased 1.5% in the first quarter.

On a same-facility basis, impatient surgical volume increased 2.3% and outpatient surgeries increased 1% for the quarter.

Outpatient surgical volumes performed in our freestanding ambulatory surgery centers increased 3.6% in the first quarter, rebounding from a fourth-quarter decline.

Hospital-based outpatient surgeries were essentially flat for the quarter.

Overall, we were pleased with this performance.

On our call last quarter, I outlined in some detail our plans to grow our volume in our markets.

I will not repeat all of that this morning, but let me just say that we continue to focus on adding medical office building capacity where needed, implementing detailed action plans relative to physician recruitment, outpatient services development and product line initiatives and pursuing a vigorous patient safety and service agenda, all supported by a focused and disciplined capital spending program.

As can be expected from an expense perspective, when volumes are soft, there is obviously significant pressure on the cost line.

Variable costs can be adjusted more quickly, fixed costs cannot.

As a result, salaries, wages and benefits, adjusting for the uninsured discounts expressed as a percentage of net revenue, were up 30 basis points for the quarter, or 39.1%.

Even though it's slightly from prior year's first quarter, this is still a reasonably good performance and consistent with the positive trends we have established.

In general, I believe our facility executives continue to do a good job in adjusting labor costs as efficiently as possible.

Wage rates grew 4.7% from last year’s first quarter, in line with recent trends.

One final thought for this morning relates to our New Orleans market.

There has been a lot of interest in the condition of the city and the marketplace.

As you might recall, we opened 53 beds at Tulane University Hospital and Clinic on February 14.

We quickly filled this capacity and are now planning on opening additional beds.

Obviously, it is still too soon to tell how the city will recover, but it is fair to say that our employees and physicians are energized and optimistic about the future.

And with that, over to you, Milton.

Thank you, Richard, and good morning.

Richard's comments covered our volume results, so I will give you a few comments regarding our net revenue growth and net revenue per adjusted admission yield.

Same-facility net revenue grew 5%.

Adjusting for uninsured discounts, same-facility net revenue grew 7.3%.

Same-facility net revenue per adjusted admission increased 5.1%.

After adjusting for uninsured discounts, net revenue per adjusted admission increased 7.4% over the first quarter of 2005.

Our net revenue per adjusted admission growth reflects solid pricing and increased intensity or acuities during the quarter.

Our same-facility case mix index increased 1.8% over last year’s fourth quarter.

Our same-facility revenue per adjusted admission growth by payor was as follows -- Medicare increased 6.6%, Medicaid down 1%, managed care up 5.1%.

Managed care includes managed Medicare admissions.

Starting in January of 2006, we are breaking out our managed Medicare (indiscernible) and commercial managed care, allowing us to track rate and volume growth of each in 2007.

Contracting for our managed care revenue is virtually complete for 2006 at approximately 90%.

We have completed approximately 38% of our 2007 contracts, [had] average yields in our commercial managed care contracts of 6 to 7%.

Now turning to expenses, included in the released this morning is the supplemental non-GAAP schedule which adjusts for uninsured discounts in the first quarters of 2006 and 2005.

We believe this provides an important comparative picture when looking at our expenses as a percent of revenue.

Same-facility operating expense per adjusted admission increased 7.6% in the first quarter.

Labor costs, salaries and benefits on a reported basis increased 120 basis points expressed as a percent of revenues.

And as Richard just mentioned, adjusted for [uninsured] discounts, salary and benefits increased 30 basis points in the first quarter of 2006 compared to last year.

The product expense on a reported basis increased 40 basis points from the prior year's first quarter.

However, adjusted for uninsured discounts, supply costs as a percent of revenue was unchanged at 16.7.

Supply cost per adjusted admission increased 7.8% in the first quarter, reflecting growth in medical device costs per adjusted admission at 11.2%, primarily driven by spinal procedures.

Pharmacy up 3% and commodities up 7.8%.

Other operating expense as a percent of revenues adjusted for uninsured discounts increased 10 basis points to 15.5%.

Most of the components of other operating costs were consistent with the prior year financial results.

However, we did continue to experience increase in utility costs which grew 15 million over the first quarter of 2005 and professional fees, which increased 15 million from the previous first quarter.

Insurance costs in the quarter were comparable with the prior year at 100 million.

Let me briefly comment on bad debt expense in the quarter.

Bad debt expense was 596 million, or 9.3% of revenue.

Adjusting for uninsured discounts, bad debt expense would be 852 million, or 12.8% of revenues, compared to 683 million, or 10.9% of revenue in the first quarter of 2005.

Same-facility uninsured admissions increased 13.1% in the first quarter compared to 15.3% in the fourth quarter of 2005 and 3.3% in the prior year's first quarter.

Uninsured admissions actually declined sequentially by approximately 500 admissions.

Uninsured admissions totaled just under 21,000 on a same-facility basis in this quarter.

Same-facility uninsured emergency room visits increased 5.7% in the first quarter of 2006.

Now a few comments on cash flow.

Cash flow from operations during the quarter totaled 365 million versus 852 million during the first quarter last year.

The following items caused the increase.

First, income taxes negatively impacted cash flow by 386 million.

In the first quarter of 2006, we made 275 million in payment consisting of 177 million refundable tax deposits, 80 million payment made with our 2005 tax return extension request and 18 million of state and other tax payments.

During the first quarter of 2005, we received an 85 million net refund related to overpaid income tax in 2004.

Those items account for 360 of income tax change.

Second, changes in working capital items decreased cash flow by 96 million in the first quarter of 2006 compared to the first quarter of 2005.

Accrual for construction in progress and salaries and other benefits were higher at the end of 2005 than at the end of 2004 and these amounts were paid in the first quarter of 2006.

During the quarter, cash reflected as a percent of adjusted net revenue was 101.5%. (indiscernible) service collections totaled 75 million, up 7% over prior years, and represent 45% of available dollars to collect.

Vic, at this point, I will turn the call back to you.

Alright.

Jack, Richard, Milton, thank you very much.

Laura, if you could come back on, we will open the line for questions.

(Operator Instructions).

Darren Lehrich, Deutsche Bank.

I just wanted to talk a little bit about supply costs.

I guess they came in a little bit higher than we had expected.

I know the lighter volumes may have had some impact on that, and you mentioned spinal as well.

I'm just wondering if you can get supply costs down below 17% of revenue this year, maybe just talk a little bit about what a good range is for that.

And how might the [Zimmer] deal have an effect on your supply costs on the orthopedist side.

Thanks.

Richard, you want to lead off here, and then we'll see.

I don't think we get supply costs below 17% for the year.

I think that number moves up into the 17.2 range, 17.4 range as we go forward.

And we have reached a good agreement with Zimmer.

That wouldn't be a material number.

Anyone else need to add to that?

Thanks, Darren.

Glen Santangelo, Credit Suisse.

I just have two quick questions please.

Could you just comment on the insurance sub, and maybe how we should think about that relative to the guidance for the rest of the year?

Jack, I think you commented that the portfolio has been rebalanced, but do you anticipate potentially taking any extra gains as the year rolls on?

And then secondly, my question was around share repurchase.

It seems like you used up pretty much all of the authorization.

Do you anticipate going back to the Board and authorizing any additional shares?

To the first question, obviously there is the possibility of taking further gains for the rest of the year.

If it seems appropriate, we would certainly do so, investment gains in the insurance subsidiary.

We are not prepared to give specific guidance on that, because obviously at this point in time, we are not sure exactly how the market is going to react or what might be appropriate to do the further rebalance, so I'll just leave it at that, to tell you that we anticipate further investment gains, unrealized gains being made realized during the year.

The second thing as to share repurchase, as you well know, we go through a planning processes during this summer, culminating in September with our Board planning retreat, and we look at all areas of the Company's operations, including the financial side, the use of our free cash flow.

So the answer to your question is, I cannot predict and would not predict another share repurchase.

It's always possible, but we're not anticipating one at the present time.

Thank you very much.

I appreciate it.

Ken Weakley, UBS.

Hello, everyone.

I wanted to take a kind of longer look at HCA.

One of the things I did waiting for the call is, I looked at the first quarter of 2000.

And since then, your revenues are up a lot, 50%.

And I know we look at bad debt as one of the major issues behind the lack of earnings growth, but by my math, about 80% of the bad debt rise would have been mitigated, had labor and supply cost increased in line with revenues, suggesting perhaps that there's substantial room for earnings accretion, should labor and supply costs be more tightly managed.

What are the factors behind long-run labor and supply creep?

Is it lack of productivity, is it just pricing?

What is the basic long-run math here that prevents those two cost items from growing in line with revenues?

Ken, thank you.

I think, Milton, you're going to take a shot at that.

Yes.

Ken, I think the issue that would allow some improvement there is really volume related.

I think that we have a high amount of fixed costs in this business; as Richard mentioned, it's hard to flex that, especially within a quarter.

And so I think what you are seeing, is we have obviously been going through a period where volumes have been flat to up slightly, and that has not allowed us to gain some expansion in margin from the SW&B and supply line.

I think that if we could return to higher volumes in the 2.5 to 3%, which we're not predicting, by the way; but if we could, then you would see probably some changes there.

But I think the issue you're bringing up is more related to volume and fixed costs, not being able to leverage down on that when volumes slow down.

But shouldn't you be able to -- is there like -- is the full-time equivalents per bed -- how much has that changed over time, if I could just one follow-on?

Do you know?

No, Ken.

Off the top of my head from 2000, I do not know what that would be.

Okay, thanks so much.

Adam Feinstein, Lehman Brothers.

I just wanted to follow up, just similar questions to what was asked about, but just wanted to just go through it some more here.

Jack, earlier in the call, you spent a little bit more times than usual talking bout your dividend policy here.

And then you asked a question about the stock buyback.

One of the things that we have talked about previously as well is just the potential to [temporary] assets and do additional spinoffs in the future.

I know you guys have your meeting in the fall and you'll be able to give more details then.

But just in terms of just thinking about that, any thoughts or any comments?

Should we read into your comments about the dividend policy here?

Was there any particular point you were trying to make there, just any clarity would be great.

Thank you.

The reason I talked about those at the beginning is to point out once again that we are aggressive in our thought processes about how you use free cash flow in this company to create value for the shareholders.

And we will continue to focus our attention on that.

I cannot and won't hint or predict or try to further clarify what that might mean over the next few months.

All I can do is pledge to our shareholders that we will continually look at that, that we will process the information, try to understand our environment as best we can and use whatever means we believe is both prudent and protective of the Company, but also uses our cash flow in a way that creates better total return to the shareholders than simply comes from operating results.

I think that is part of our responsibility.

We have great assets here and how we use those assets and the full range of the assets that we've created to produce that value I think is very important to us.

Okay, thank you.

Erik Chiprich, Harris Nesbitt.

I just wanted to get a little bit of commentary from you guys on the outpatient surgery.

It looked like that improved.

Is there improvement in the San Antonio market?

And then also, any additional information on your earlier plans?

You had mentioned I think building out an additional eight to 10 [ASCs] and increasing your imaging centers by 15 to 25 this year .

How is that moving along?

Thank you.

Bruce Moore, President of our Outpatient Area;

Bruce, do you want to take a shot at that?

Sure.

Related to the Ambulatory Surgery Division -- on the development side, we had closed three acquisitions in the first quarter and closed out on one more development in the first quarter and anticipate, as far as new developments, adding another six or seven this year.

So we anticipate being almost up in double figures as far as new surgery centers coming on.

We're seeing good growth in that line of business.

If you'll recall from the fourth quarter, the biggest thing was Florida and San Antonio.

And Florida, we saw a nice rebound, as far as the overall volume.

Sam, I don't know on San Antonio.

So that's still down 2%, but overall, we had nice growth.

On the imaging side of the business we had -- it's still early to say how the imaging business is doing overall.

If you will recall, most of the acquisitions that we did were in the first and second quarter of 2005, so we'll have better year-over-year comparisons.

Overall, we still feel good about that.

We're running at about a 25.9% EBITDA margin in that line of business right now.

I think with the Deficit Reduction Act, it will go into place with the imaging business in 2007.

Our acquisitions will slow down on that until some of the multiples come back, and then we will probably continue to do some development.

We have in excess of 10 scheduled to come online this year.

So we still feel good about that overall strategy.

Bruce, thank you.

Jason Gurda, Bear Stearns.

We have now been three years in a slower volume growth environment, looking back over the last three years.

Could you maybe roughly speak about what percentage of the slowdown you would attribute to increased competition, what percentage maybe to the tightening of Medicare restrictions, and also, what presented just to a general softening of demand?

Jason, that's a good question, and I guess while anybody thinks about how they want to talk about it, and we may talk a little bit, because markets really vary.

We really have some differences, so we may enlist the group presidents to help out a little bit, Richard, if you want.

But I think just to frame it as I think I recalled the numbers, if you look back '99, 2000, 2001 and really 2002, we were looking at numbers right around 3% in this company in terms of growth.

It was 2003 where everything flattened out.

Unfortunately, there is such a lag in industry data that you really don't know for some time, but it's now after the fact.

You can see that 2003 was basically a flat year nationwide, and we were part of it.

Things have picked up, '04, '05, '06, and depending on how you adjust the numbers and a lot of moving parts in it, we're going somewhere in the 1 to 1.5% range during this period of time, if you look at a year versus just a single quarter.

So, clearly, not what it was before, better than '03, but clearly the overall volume growth in our markets is softer.

But there are huge differences market by market.

So with that setting the framework, I pitch it to Richard or any of the group guys that want to make a comment.

I don't have it arithmetically worked out over a three-year period.

I do have some numbers for the first quarter, obviously a much smaller span of time.

But if you look at -- think about the first quarter of our business, you compare our admissions levels '05 to '06 first quarter, we are off about 2750 admissions.

The cardiology and competition category would probably represent about 1600 of those admissions.

The DPUs, the skilled and rehab and psych would represent a little over -- almost 1300 -- 1270.

And the pulmonary admissions, the flu-related point, would be the vast majority at about 5200, almost 5300.

So for the first quarter, the big culprit was the flu, and to a lesser extent, the cardiology and DPU issue.

Group presidents, any comments you want to make?

Charlie Evans -- Charlie has the East and Florida.

You obviously -- you've seen the weakest volumes of late (MULTIPLE SPEAKERS).

And I'll actually try to relate to this over the longer-term than just this quarter that we've talked a good bit about.

On the longer-term, we have seen very little in terms of loss of market share.

We have very good data to compare in Florida.

So there is no indication generally that we are losing share.

We appear to be in a very good position competitively.

So in these categories that you listed, our volume issues have tended to relate to regulatory around skilled nursing and rehab and some of those issues that we've talked about over time, as well as the cardiology changes that we've experienced, and then just the general business.

And of course, we have been dramatically affected by weather events over that time period.

The hurricanes -- we've had eight hurricanes in Florida over the two years, so it's just a very dramatic effect with the storms.

I guess the only comment I would make, Sam, I know the Western Group had good volumes this particular quarter, and by large, we have had a little better volumes out there.

Any particular thought from your market?

Recently, I did an analysis to try to understand what our trends were so that we could think forward about what we needed to do with some of our capital projects and so forth.

And across the group over the last 2.5 years or so, we've averaged about 1.5% adjusted admission growth.

There clearly is a lot of competition in the Western markets, a lot of that being physician-owned entities.

We've tended to compensate for that pretty well I think with the number of our strategies.

Obviously in certain markets in the short run, we do experience downturns that are attributable to new competition, but we have tended to overcome that with some strategies and incremental approaches in different markets to try to address that.

But generally, we are not seeing any significant regulatory impact.

I think the economy, when it softened, and the Western markets in particular a couple of years ago did have a dramatic impact on our activity levels because population trends slowed down and so forth.

But we are not seeing that to the same degree now, and we are fairly optimistic that we can sustain the kind of trends that we've had in the past and possibly even improve those as the markets mature with their employment levels and so forth.

Sam, thank you.

Paul Rutledge has our central growth, in particular, Virginia and Tennessee.

You want to address those markets?

Over the longer-term similar to the East and the West, we have not been experiencing the sort of drop that we had this particular quarter.

We have some unique issues going on relative to volume this quarter.

Specifically, the medical versus surgical admissions is very unusual compared to the past.

We have had a significant drop in our medical volume, whereas we have had a slight uptick in the surgical volume.

We know specifically that 51% of our medical volume miss is related to pulmonary.

So just on the macros for the total group, that's what's going on their.

In Virginia specifically, it has been mentioned as a market that has been challenged.

We have three markets specifically around Richmond, northern Virginia and southwest Virginia.

And Richmond is our largest market and it accounts for one-third of our group volume variant.

And it's really -- there are three things that contribute to that.

One is the general volume softness that we've been discussing overall for the Company, and that's evidenced by the drop in ER visits and admits through the [ED].

The second is impact of a new hospital that came in the market third quarter of '05, and then there are some market-specific physician dynamics.

Just a further comment on that -- in this particular market, the physician dynamics are such that specialists tend to group up the into large super groups, versus solo or small groups.

And when there's a shift in the market with the medical staff, it has a larger impact than in some other markets.

Good.

You heard a cross-section of short-term, long-term, whenever.

Clearly on the short-term basis, you always have to look at the prior year and the big flu numbers and the things that we're doing in the DPU units and what have you.

But I think you got a little better feel on how these markets vary in the various factions.

Thank you very much, that was very helpful.

A.J.

Rice, Merrill Lynch.

I'm going to trust of follow-up on some of the comments that Milton made about the bad debt.

If your sequential self-pay admissions were down 500 versus the fourth quarter and we look at the moving parts -- strength in outpatient relative to inpatient, strength in surgery, weakness in pulmonary -- do you think you can read anything into that sequential shift, in terms of where we are at with self-pay admissions.

And then also on the bad debt line, I'd just ask you to maybe update us on the initiatives that I know started in Houston and were successful regarding triaging patients and improving upfront collections -- where do you stand across the portfolio in that?

Milton, you want to lead, and then flip it to Beverly?

A.J., I think when we look at the sequential trend and the uninsured admissions, you have to look at the ER volume.

We had, as I said, 5.7% growth in uninsured ER visits.

That is actually down if you look at the stats over the last year.

We have been up probably no less than 10% and as much as 15% in uninsured ER visits in prior quarters.

So that I think relates back to the drop in admissions.

And so we saw some ER softness really across all payor classes, but certainly in the self-pay as well.

So I think that is a piece of it. 500 admissions off the base of admissions that we have in his company is very hard to necessarily be able to isolate the reasons for that.

But I think in this case, it does tie back to the ER's -- lower growth rate in uninsured ER visits.

And one thing, just another point on that, we typically see, and I really don't know the reason for it, but we typically see our highest volume of uninsured admissions in the third quarter.

That has been true for probably the last three to four years at least.

And so it's very hard for us to understand the reasons for that, so that has been the statistical results.

So I hope that answers the question on that.

Then, Beverly, I will turn it over to you for the Houston.

We are about one year post converting all of our hospitals in Houston to what we call a qualified medical practitioner program.

And when you look at the data in Houston, we believe that it has had a positive impact on their year-over-year growth in self-pay.

But not only that; it has freed up capacity, more importantly, freed up capacity in the emergency rooms so that the throughput is better and that the managed care portfolio is growing.

When you look at the rest of our hospitals, we have identified 15 hospitals in the eastern group that we're in the process of growing this program out.

Several of them are in Florida, one or two in Georgia and one or two in South Carolina.

So we are still growing the program out, we're being very deliberate about it and we're only doing it where it makes sense.

With respect to our point of service collections, Milton gave you that comment earlier.

We are seeing both quarter-over-quarter and year-over-year improvement in our point of service collections, which we believe are also impacting the trends on the bad debt line.

Sheryl Skolnick, CRT Capital.

I have two somewhat guidance-related questions.

The first question is, when you gave the original guidance for this year, did you contemplate taking those investment gains from the insurance subsidiary, which I would distinguish from the reserve activity as being an ongoing business, but this kind of a decision point in the business?

So did you anticipate taking it, given that you gave the guidance in the first quarter for the rest of the year?

That was the first thing that I wanted to know, and so was the $0.11 included in the original $3.25 to $3.45?

And the second, given that the cash flow this quarter was weak, and you gave us a good breakdown on it, can you make that up during the year, or should we think about cash flows as being significantly less for the Company this year, albeit still in excess of your CapEx?

Sheryl.

Two good questions, and we will let Milton have those.

Sheryl, we did not anticipate the 75 million in gains.

Again, we don't give quarterly guidance.

We did have gains similar to what you have seen in the last couple of years in our guidance, but we did not necessarily think of it as necessarily coming in this quarter.

That was more dictated by market situations and the favorable market we were in and the need to rebalance some of that into the fixed income.

So the timing for this particular quarter, I cannot say that it was anticipated, but for the year, we did have gains baked into our guidance.

And then with respect to cash flow, I don't think that you would see us make up the full amount of that cash flow based on how we have the guidance set for the rest of the year.

Of course, some of these payments are related to income tax differences, again, last year receiving a refund of about 85 million from the 2004 overpayment in January.

And then this year of course, we made a $177 million refundable deposit with respect to some issues that we had with the IRS that we feel like we are better off to make the deposit and cut the interest running with them on that.

So I don't think we will be able to necessarily make that up throughout the rest of the year.

The other differences were just working capital changes.

And if working capital trends up at the end of '06, we could pick up some of that.

But, our model is not necessarily predicting that.

I want to get a little refinement here.

So you normally would report investment gains from that subsidiary in the order of $10 million-ish a quarter.

Was that sort of what you had in mind -- that it would continue along at that $40 million rate, as opposed to 75 million in one quarter?

Sheryl, I'm not going to get into giving the guidance on our particular gains.

I would say that, if you look over the last couple of years, we have had between I think $50 and $60 million of gains in each of the last two years.

And our guidance -- the annual guidance that we gave anticipated as similar amount of investment gains in '06.

That does answer the question precisely.

Thank you very much.

Kemp Dolliver, Cowen & Co.

Could you discuss how you are approaching managing Florida, given the -- I guess the surprise on volumes this quarter with your expectations, and that in general, forecasting -- you come back in terms of tourism and general activity there is probably a difficult exercise?

Kemp, fair question.

I could ask Sam Hayes to discuss that from the West, but he might not be happy, so I will give it to Charlie Evans.

Kemp, at the risk of overdoing this answer, let me just take a second on the Florida situation given that it was such a big part of the drag on our volume in the first quarter.

We were down about 2300 admissions in Florida year-over-year, which is approaching 2%.

By far, the most critical issue was the flow through the emergency departments where we were down 10,000 visits, or 2.5%.

There were two factors that were clear and we've touched on both of those today.

The first was the softer pattern of seasonal visitors.

We have some pretty good anecdotal information through the leaders, some of the community leaders who are on our Boards of Directors in Florida, as well as community organizations.

Such as, in the North Tampa area, that hotel and convention visitor data showed that it was down for the first couple of months in the 20 to 25% range of this year, as well as tourism tax revenue being down.

In the southern part of the Tampa area, tourism tax revenue in January was down 11%, and in the Kissimmee area in Orlando, our hotel occupancies through February were down 7% with short-term rental occupancies down 12%.

So some pretty good anecdotal evidence of what was happening in some of these markets.

From our own data, it's even more revealing.

While our ED visits were down significantly in that 1.6% range -- or 1.9% range, excuse me -- some of these markets, it was quite remarkable.

We were -- in West Florida, for example, we were down about 7% in visits, 25% from out-of-state business, so that the year-over-year change with out-of-state visitors was remarkable -- up to 40% in some of the sub markets in the Tampa area, like Hillsboro.

Palm Beach down 18% and out-of-state visitors 24% in Fort Myers, so a very, very dramatic difference.

It accounted for all of our admissions change in Florida.

We were down 1200 admissions in Florida, and over 1000 of that was in our out-of-state visitors.

So the seasonal effect is very clear in terms of this first quarter.

And while I won't predict and couldn't predict what that means for the rest of the year, we are of course exiting the high season in Florida.

The flu component of this was also very real.

We were down 1000 visits in the pulmonary diagnosis and 1200 in medical cardiology.

So that was very dramatic for us year-over-year, and you can the see large numbers that more than account for the difference for the group, and really much of the drag that occurred for the Company.

So, is the seasonal effect over?

I don't know.

It was very apparent during this first quarter.

And of course, the flu season effect we would assume would be in this time period.

Charlie, good.

Kemp, thank you.

I think we have time for one last question, Laura.

Jeff Allen, Silvercrest Asset Management.

There's a new federal law that is requiring Medicaid recipients to prove that they are citizens, and I'm just hoping you can comment on that.

It sounds like it could push uninsured admissions up.

Could you please comment on that?

Does anybody want a shot at that one?

Beverly, you want to take the first shot?

Yes.

That is something in Texas, and obviously, we don't know what the impact will be.

We believe it will be a little more difficult to get patients qualified for Medicaid coverage.

But obviously, we will do what all we can do to mitigate that impact.

Okay, thank you.

Any other comments?

Okay, with that, I think we will conclude the call.

I want to thank everyone for being on it.

Mark and I will be around all day, and I look forward to any additional follow-ups.

I thank everyone for being on this morning's call.

With that, we will conclude.

Thank everyone for your participation.